How To Get More Working Capital for Your Business
Increasing your available working capital isn’t quite as simple as snapping your fingers, but it’s not as difficult as some business owners think, either. There are several basic things you can do to improve the way your company’s cash flow works. With more available capital, it’s easier to pay your bills and avoid credit problems. Follow these steps one by one for greater success.
Identify What’s Causing Working Capital Problems
The first step is to figure out why you’re running out of liquid capital during the month. Every company is different, and your circumstances may not be the same as another business’s situation. That’s why any solutions have to be customized to your company.
In case you forgot, working capital is the money your business has on hand at any given time. It’s essentially the funds you have available to pay your employees, purchase things you need, cover rent and take care of other operating costs. These funds are essential for a healthy business.
So, what can go wrong? For some businesses, the problem is extending credit to customers that aren’t trustworthy. Other times, the issue is that clients take too long to pay. Some companies give their clients 60 days, 90 days or more without late fees.
Implement Solutions That Work for Your Industry
You have to think about your industry, customers and competitors when deciding which solutions to implement for your cash flow. Normally, reducing accounts payables from 60 to 30 days is a great way to improve available funds; however, if all of your competitors offer 60 days, making billing changes could put you at a disadvantage. Try to set terms that are favorable for your business but also commonly accepted in your industry.
Review Your Current Accounts Payable Terms
If you’re giving clients too much time to pay, it may be time to scale back. Even two weeks difference can have a large impact on cash flow. For example, instead of 60 days for payment, 45 days may be an acceptable compromise that benefits both your business and your clients. You should also periodically review customer lists to determine if some clients are abusing your business credit options.
Renegotiate With Suppliers
As your business grows, so does your bargaining power with suppliers. If they see you as a valuable client, they may be willing to accommodate billing exceptions. Asking for an additional 15–30 days can give your company breathing room for working capital.